Feb. 1 (Bloomberg) -- Specialty-chemical manufacturer W.R.
Grace & Co. took a giant step toward completion of its almost
10-year-old reorganization when the bankruptcy judge signed a
79-page opinion yesterday recommending that the Chapter 11 plan
be approved and confirmed.

Because resolution of Grace’s reorganization involves
compromising asbestos claims, final approval and confirmation
comes from a U.S. district judge.

The plan received an affirmative vote from all creditor
classes other than general unsecured creditors. The plan dealt
with claims of present and future personal-injury and property-damage claims related to asbestos. The class of unsecured
creditors rejected the plan as the result of opposition from
bank lenders who were being paid in full.

The banks contended they were entitled to interest at the
higher default rate called for in the loan agreements. U.S.
Bankruptcy Judge Judith K. Fitzgerald ruled in May 2009 that
they weren’t entitled to the default rate, even though they
weren’t being paid currently. For a discussion of Fitzgerald’s
earlier ruling, click here for the May 20 Bloomberg bankruptcy
report.

In 2009 Fitzgerald left several questions unanswered about
the banks’ claims. Yesterday, she ruled against them on all
issues. Among other things, she rejected the idea that the banks
were impaired because they aren’t to receive interest at the
higher default rate. She dodged the question of whether Grace is
insolvent, saying that neither party presented evidence on the
issue.

Insurance companies objected to the plan, arguing that the
plan assigned their policies to a trust even though the policies
prohibit transfer. Fitzgerald cited other asbestos cases where
assigning insurance policies was held proper.

The official creditors’ committee objected to approval of
the plan because the committee will cease to exist when the plan
is confirmed. Fitzgerald noted that the committee is supporting
the banks’ demand for the higher default rate of interest.

Given that the committee only wants to continue in
existence to support banks and not the general unsecured
creditor body, Fitzgerald said there was no basis on which to
require the committee’s continued existence.

For other Bloomberg coverage, click here.

Fitzgerald ordinarily holds court in Pittsburgh. Early in
the Grace case when the judges in Wilmington, Delaware, were
short-handed and overwhelmed, she was named to preside over the
Grace reorganization.

Grace’s Chapter 11 plan is based a settlement from April
2008 resolving all present and future asbestos personal injury
claims and asbestos property damage claims. Columbia, Maryland-based Grace and 61 subsidiaries filed Chapter 11 petitions in
April 2001 to deal with asbestos claims.

The bankruptcy case is In re W.R. Grace & Co., 01-01139,
U.S. Bankruptcy Court, District of Delaware (Wilmington).

Updates

Only Two Competing Plans Left for Reorganizing Tribune

Once, four reorganization plan were vying for approval at
the Tribune Co. confirmation hearing scheduled to begin March 7.
Now, there are only two.

The so-called bridge-loan lenders reached a settlement
through mediation. They are withdrawing their plan and will now
support Tribune’s plan. The bridge lenders include Marathon
Asset Management LP and King Street Capital LP.

The settlement, to be incorporated into modifications in
Tribune’s plan, calls for the bridge lenders to receive $64.5
million in cash, plus distributions from a trust set up under
the plan.

The arrangers for the bridge loan can waive a distribution
from the $64.5 million in return for releases from the other
bridge lenders. The bridge lenders themselves will receive
releases under the Tribune plan.

The so-called step-one lenders withdrew their plan in
December. For a summary of the plans filed by creditors,
including the two that were withdrawn, click here for the Nov. 1
Bloomberg bankruptcy report. For details of Tribune’s own plan,
click here for the Oct. 25 Bloomberg bankruptcy report.

The remaining creditors’ plan comes from Aurelius Capital
Management LP, which calls itself the largest holder of bonds
predating the 2007 LBO. Aurelius is joined by three indenture
trustees for all of the pre-LBO debt. The terms describing the
settlement with the bridge lenders were disclosed in a Jan. 28
filing by the mediator.

The plans differ in how they would either settle or propose
to litigate disputes arising from fraudulent transfer claims
resulting from the $13.7 billion leveraged buyout in 2007 led by
Sam Zell. For a summary of some of the examiner’s conclusions
about possible defects and fraudulent transfers in the LBO,
click here for the July 27 Bloomberg bankruptcy report.

Tribune is the second-largest newspaper publisher in the
U.S. It listed $13 billion in debt for borrowed money and assets
of $7.6 billion in the Chapter 11 reorganization begun in
December 2008. It owns the Chicago Tribune, Los Angeles Times,
six other newspapers and 23 television stations.

The case is In re Tribune Co., 08-13141, U.S. Bankruptcy
Court, District of Delaware (Wilmington).

No Ruling Yet on Whether AmTrust Owes FDIC on Capital

Neither AmTrust Financial Corp., a holding company for a
failed bank, nor the Federal Deposit Insurance Corp. won when a
federal district judge handed down a 40-page opinion yesterday
on whether there was a commitment to provide capital to the bank
subsidiary.

The decision involves Section 365(o) of the Bankruptcy
Code, which says that a bank holding company in Chapter 11 must
make good on any “commitment” with the FDIC to maintain
capital at a bank. Further, the commitment is an obligation to
be paid in full in the Chapter 11 case and isn’t discharged at
pennies on the dollar like pre-bankruptcy unsecured claims.

In AmTrust’s case, the FDIC pointed to three documents
allegedly making a commitment to supply needed capital before
the bank subsidiary failed. AmTrust contended that the same
documents showed there was no commitment.

U.S. District Judge Donald C. Nugent in Cleveland said the
documents were ambiguous. He told the parties to begin a trial
on April 18, where he will rule whether the documents constitute
a commitment to supply capital. If there is a commitment,
AmTrust’s obligation to make up the failed bank’s capital
deficiency will come ahead of the claims of unsecured creditors.

The same issue arose in five other cases, the judge said.
In each, language in the governing documents was different, so
the outcome in other cases didn’t determine if there is
liability in AmTrust’s case.

AmTrust filed for Chapter 11 protection in November 2009,
four days before regulators took over the bank subsidiary. As
receiver for the failed bank, the FDIC sued in bankruptcy court
to recover the capital deficiency.

At the request of the FDIC, the dispute was transferred to
the district court on account of issues involving non-bankruptcy
law. AmTrust and the FDIC agree, according to a court filing,
that the outcome of the dispute will determine whether the
Chapter 11 case must be converted to a liquidation in Chapter 7.

AmTrust’s bank subsidiary was taken over and transferred by
the FDIC to New York Community Bank.

Based in Cleveland, AmTrust said the family of companies
had assets of $11.7 billion and debt of $11.5 billion before the
bank failed. At the start of the Chapter 11 case, the assets of
the companies in bankruptcy included ownership of the non-bankrupt subsidiaries, $7.3 million in cash, and $23 million of
fixed assets at book value. Debt of the companies in bankruptcy
included $169.5 million for borrowed money, made up of $99.5
million on senior notes and $51.6 million on subordinated notes.

The opinion in the district court is Federal Deposit
Insurance Corp. v. AmTrust Financial Corp., 10-1298, U.S.
District Court, Northern District Ohio (Cleveland). The Chapter
11 case is In re AmFin Financial Corp., 09-21323, U.S.
Bankruptcy Court, Northern District Ohio (Cleveland).

Apartheid Claims Against Old GM Dismissed by Judge

Old General Motors Corp. defeated a class-claim where
citizens of South Africa alleged that the one-time largest
automaker in the U.S. aided and abetted the system of apartheid.

The class claim was filed under the federal Alien Tort
Statute which allows foreigners to bring suits in U.S. courts
for violation of international law.

While stating his personal “abhorrence of apartheid,”
U.S. Bankruptcy Judge Robert Gerber said he was compelled to
dismiss the claim under authority from a Circuit Court of
Appeals decision in September called Kiobel. Gerber said that
the Circuit Court in Manhattan ruled in Kiobel that no
corporation has ever been held liable for alleged violations of
international law of human rights.

Gerber noted that one judge on the panel issued what he
called a “vigorous dissent.” The appeals court is currently
considering a motion for the Kiobel case to be reheard by all
active judges on the circuit court.

Gerber also said it wasn’t proper to have a class claim.
While there would be some common issues among the members of the
class, Gerber said “individual issues would predominate.” For
other Bloomberg coverage, click here.

Gerber signaled his approval in December for old GM’s
disclosure statement. The confirmation hearing for approval of
the liquidating plan will begin March 3. Filed in August, the
plan creates a trust for unsecured creditors designed to
distribute the stock and warrants issued by new GM as
consideration for the sale of the assets. New GM is formally
named General Motors Co. For details on the plan, click here for
the Sept. 1 Bloomberg bankruptcy report.

Old GM, now formally named Motors Liquidation Co., began
the largest manufacturing reorganization in history by filing
under Chapter 11 on June 1, 2009. The sale to new GM was
completed on July 10, 2009. GM listed assets of $82.3 billion
against debt totaling $172.8 billion.

The case is In re Motors Liquidation Co., 09-50026, U.S.
Bankruptcy Court, Southern District of New York (Manhattan).

Innkeepers Has $2.26 Million December Operating Loss

Innkeepers USA Trust, a real estate investment trust,
reported a net loss of $8.34 million in December on total
revenue of $19.82 million.

The operating report filed in bankruptcy court in New York
showed an operating loss of $2.26 million. The net loss from
continuing operations was $4.6 million. Reorganization items in
the month totaled $3.7 million.

Innkeepers has a new reorganization structure where Lehman
Ali Inc. and Five Mile Capital Partners LLC would share
ownership after Chapter 11. For details on the new plan
structure, click here for the Jan. 18 Bloomberg bankruptcy
report. The bankruptcy court will hold a hearing on March 8-9 to
consider setting up auction procedures and approving agreements
underlying the new proposal.

Palm Beach, Florida-based Innkeepers has 72 extended-stay
and limited-service properties with 10,000 rooms in 20 states.
For details on the first Innkeepers plan the bankruptcy judge
rejected, click here for the Aug. 31 Bloomberg bankruptcy
report.

The case is In re Innkeepers USA Trust, 10-13800, U.S.
Bankruptcy Court, Southern District New York (Manhattan).

Townsends Has Loan Approved until February Sale

Townsends Inc., a vertically integrated chicken producer,
received final approval on Jan. 28 for an additional $5 million
in secured financing on top of $7 million already approved.

Townsends is scheduled to sell the business at auction on
Feb. 15. With financing expiring in February shortly after the
sale, the order approving financing requires the company to
convert the case to liquidation in Chapter 7 if there is no cash
remaining to pay expenses.

The financing order also requires the lenders to allow the
use of sale proceeds to pay some of the cost of goods delivered
within 20 days of Townsends’ Chapter 11 filing.

Townsends filed under Chapter 11 on Dec. 19. Based in
Georgetown, Delaware, the family-owned company is capable of
producing 700 million pounds of poultry a year and 1.3 million
eggs a week. The four production facilities are in Arkansas and
North Carolina.

Townsends listed assets of $131 million and liabilities of
$127 million. Liabilities include $20.7 million owing to secured
lenders on a term loan and $40 million on a revolving credit.
Twelve-month revenue was $504 million. Townsends contracts with
over 300 growers who operate 1,200 chicken houses.

The case is In re Townsends Inc., 10-14092, U.S. Bankruptcy
Court, District of Delaware.

RR Donnelley, Gould Paper on Orchard Brands Committee

Subsidiaries of retailer Orchard Brands Corp., which began
their prepackaged reorganization on Jan. 19, have an official
creditor’s committee with seven members. The committee’s
assignment includes investigating whether the proposed
reorganization can be improved for unsecured creditors who
otherwise will receive nothing unless they fall within the
category of selected trade suppliers.

The Orchard Brands companies operate 55 retail stores. The
agreement with lenders requires either consummation of a Chapter
11 plan or a sale of the business not later than May 21.

The plan was worked out with holders of 80 percent of the
first-lien debt and all of the second-lien obligations.

The plan would give the stock and new debt to the secured
creditors. For details on the plan, which would reduce debt by
$420 million, click here for the Jan. 20 Bloomberg bankruptcy
report.

Debt includes $115 million owing to trade suppliers and
$725.1 million for borrowed money. Orchard is controlled by
private-equity investor Golden Gate Capital Corp. Orchard, a
holding company, is not itself in Chapter 11.

Beverly, Massachusetts-based Orchard has 17 brands,
including Appleseed’s, Draper’s & Damon’s, Gold Violin, Haband
and Norm Thompson. The stores sell clothing, footwear, and
household goods. They appeal to shoppers over age 55. Orchard
also sells through catalogues and the Internet.

The case is In re Appleseed’s Intermediate Holdings LLC,
11-10160, U.S. Bankruptcy Court, District of Delaware
(Wilmington).

Palm Harbor Reports $5.3 Million December Net Loss

Palm Harbor Homes Inc., a maker of factory-built homes,
filed an operating report showing a $5.3 million net loss on
revenue of $12.7 million for the period Nov. 30 through Dec. 24.

The loss before interest, taxes, depreciation and
amortization for the period was $4.75 million.

Palm Harbor is to auction most of the business on March 1,
with an opening bid from Fleetwood Enterprises Inc., a venture
between Cavco Industries Inc. and a fund advised by Third Avenue
Management LLC. Dallas-based Palm Harbor filed under Chapter 11
in late November.

Fleetwood is providing as much as $55 million in secured
financing. To purchase, Fleetwood will pay the greater of $50
million or whatever is outstanding on financing, plus $6.5
million for the assumption of liabilities on warranties. The
price is subject to possible downward adjustment. In addition,
$3 million cash will be set aside to fund expenses for winding
down the bankruptcy.

Fleetwood was purchased out of Chapter 11 in 2010 for $26
million by Cavco, a producer of manufactured homes from Phoenix.

Palm Harbor’s petition said assets are $321 million with
debt totaling $280 million. On top of $34 million owing to
Textron Financial Corp., there is $53.8 million owing on 3.25
percent convertible senior notes due 2024.

The case is In re Palm Harbor Homes Inc., 10-13850, U.S.
Bankruptcy Court, District of Delaware.

Evans listed assets of $32.4 million against debt totaling
$44.2 million, including the bank debt.

Evans transported 50 million gallons of product in 2010 and
generated $3.5 million in earnings before interest, taxes,
depreciation, and amortization, a court filing said.

The company is owned and controlled by Randy M. Long.
Immediately after the Chapter 11 filing, the company filed
papers asking the bankruptcy judge to stop the bank from suing
Long on a personal guarantee.

Evans says that forcing Long into his own bankruptcy would
distract him from the important task for working on the
company’s reorganization.

Evans provides product for Chevron-branded service stations
and other bulk users such as municipalities.

Chevron Products Co., owed $2.45 million, is listed as the
unsecured creditor with the largest claim.

Waterfront Property in Madeira, Florida, Files Ch. 11

Hubbard Properties LLC, the owner of the John’s Pass
Boardwalk in Madeira Beach, Florida, filed for Chapter 11
protection on Jan. 27 in Tampa, Florida, owing $22.6 million on
a mortgage to Investors Warranty of America Inc.

The property has five buildings with 39,900 square feet and
a 322-car parking garage. It was renovated in 2008, giving rise
to the IWA mortgage.

The property has been owned by the Hubbard family since
1976. It includes a marina and the Friendly Fisherman
Restaurant.

On the same day as the Chapter 11 filing, IWA filed a
motion asking the bankruptcy judge to declare that the Hubbard
is a so-called single-asset debtor. If the bankruptcy judge
agrees, bankruptcy law requires Hubbard to file a reorganization
plan within 90 days that has a “reasonable possibility of being
confirmed within a reasonable time.” Absent a plan within the
required time, IWA can foreclose.

The case is In re Hubbard Properties LLC, 11-01274, U.S.
Bankruptcy Court, Middle District Florida (Tampa).

London’s Global General Files Third NY Chapter 15

London-based reinsurer Global General & Reinsurance Co.
Ltd. became the subject of yet another Chapter 15 case begun
yesterday in New York. The new filing is designed to support a
so-called scheme of arrangement approved Jan. 28 by the High
Court of Justice of England and Wales.

Global General hadn’t written any new policies since 2002
and was in runoff. With the latest approval last week, four
lines of business have been the subject of arrangement schemes
approved by the U.K. court. Last week’s approval dealt with what
is referred to as the “mainstream portfolio,” related almost
exclusively to reinsurance.

Without the intervention of a scheme, running off an
insurance portfolio could take 20 years. The scheme in the U.K.
court has the effect of accelerating liabilities on outstanding
policies and allowing a quicker distribution to policy holders.

Two of the prior schemes were the subject of Chapter 15
cases in New York. One was approved by the U.S. Bankruptcy Court
in 2007, and the other in 2009.

In Chapter 15, the U.S. court can stop suits in the U.S.
and compel compliance with the U.K. arrangement.

To read Bloomberg coverage, click here.

The case is In re Global General & Reinsurance Co. Ltd.,
11-10327, U.S. Bankruptcy Court, Southern District of New York
(Manhattan).

Downgrades

JPMorgan’s NCO Group Lowered to Moody’s Caa1 Corporate

NCO Group Inc., an accounts receivable services manager,
received a downgrade yesterday to a Caa1 corporate grade from
Moody’s Investors Service, matching the action taken by Standard
& Poor’s in December.

Moody’s pegged its action on “greater than expected
revenue declines,” “deteriorating consumer payment patterns,”
and a “potential breach of covenants.”

Moody’s also demoted the $165 million in senior floating-rate notes to Caa2. The $200 million in senior subordinated
notes became Caa3.

In its December downgrade, S&P mentioned there was a 30
percent decline in earnings before interest, taxes,
depreciation, and amortization over the last three quarters.

The Horsham, Pennsylvania-based company was acquired in May
2006 for $1.2 billion by a group including JPMorgan Chase & Co.

J. Crew to Be Downgraded by S&P on Leveraged Buyout

The upcoming leveraged buyout of retailer J. Crew Group
Inc. means the corporate rating from Standard & Poor’s will fall
by two notches to B.

The new senior unsecured notes will have a CCC+ rating.

TPG Capital and Leonard Green & Partners LP are proposing
to take New York-based J. Crew private in a $3 billion
transaction.

J. Crew has about 250 stores. The shares closed yesterday
at $43.42, up 2 cents in New York Stock Exchange composite
trading. The company reported net income of $43.9 million for
the three quarters ended Oct. 31 on revenue of $414 million.